The Cabinet of Ministers of Ukraine adopted Order 756-r “Some Issues of Holding a Tender for the Construction of Generating Capacity and Implementation of Demand Side Management Measures” (“Order No. 756”) on 13.08.2024, according to which the procedure for preparing for a tender to construct new generating capacity with the following conditions was launched:
Indeed, the rule governing this type of support is established in Article 29 of the Law of Ukraine “On the Electricity Market”, according to which, in case of insufficiency of the existing generation and the generation being built to meet demand and security of supply, a tender may be held for the procurement of services for the construction of such capacity, reconstruction (modernization) of existing generating capacity, and extension of the life of nuclear power units. The same article determines that the following may be used as the following incentives for the construction of a new generation under the terms of the tender:
1) establishing a fee for the service of ensuring the development of generating capacity, which we see in the tender, which is enshrined in Order No. 756
2) assistance in allocating a land plot/allocation of a site for the construction of new generating capacity;
3) application of public-private partnership mechanisms;
4) provision of state aid to business entities at the expense of state or local resources.
The tender procedure is directly regulated by the Resolution of the Cabinet of Ministers of Ukraine No. 677 dated July 10, 2019 “On Approval of the Procedure for Holding a Tender for the Construction of Generating Capacity and Implementation of Demand Side Management Measures” (“Resolution No. 677”).
The tender will be conducted by the Transmission System Operator (TSO). Still, the actual responsibility for the tender lies with a specially created commission (the term of creation is 30 calendar days from the date of the relevant order), which consists of:
The tender is held on the basis of tender documentation developed by the TSO within 60 days from the date of the relevant resolution, which must be approved by the tender commission. By the way, at all tender stages, Resolution No. 677 provides for substantial involvement of the Energy Community. In particular, the approved tender documentation must be submitted to them.
The tender documentation may also be amended or clarified following a meeting with potential tender participants held after its publication.
The list of documents, information, requirements, etc. to be included in the tender documentation is clearly defined in part 17 of Resolution No. 677. Particularly noteworthy is the requirement that the tenderer or its guarantor (surety) must have experience in implementing a project for the reconstruction and/or modernization of power equipment and/or new construction of a power plant with an installed capacity of at least 20 MW as a customer and/or general contractor and/or contractor. Consequently, only companies operating in the energy sector and power plants of significant capacity have access to the tender.
Without any doubt, Resolution No. 677 also provides for the payment of a financial guarantee by the participant or his guarantor for participation in the tender, which amounts to EUR 100,000.00 as a base and EUR 1,000.00 per 1 MW of capacity declared by the participant in his tender offer. If the tender does not take place, or after the conclusion of the contract with the winner, the guarantee is refundable.
The tender is held in two stages, which include the qualification of participants and determination of the best offer.
At the qualification stage, the commission:
The next stage will be held no later than 10 calendar days from the date of publication of the decision on the results of the qualification of participants. If a contestant refuses to participate in the tender after qualification, the guaranteed security for participation in the tender is not refundable.
All bidders become winners of this stage if the amount of capacity declared by the bidders is less than the required amount. If the amount is higher, the winner is determined by the rating of the best price offers, and in case of their equality – by the longer service life of the future facility.
The decision on the winner is formalized in a manner similar to the protocol within 7 calendar days after the completion of the second stage of the tender, and the winners are sent contracts for signing. The winners have 20 calendar days from the date of receipt of the agreements to sign them and provide a guarantee in the amount of EUR 30,000.00 per 1 MW of capacity. If the winner refuses to sign the contract, the guarantee of security for participation in the tender will be collected in favor of the TSO.
Afterward, the winner must ensure the construction of the power facility within the established timeframe, provide the TSO with documents confirming the commissioning of the facility, receive a refund of the guarantee, and start receiving equal installments at intervals specified in the contract for the cost of the service for the construction of generating capacity and the implementation of demand management measures in the hryvnia equivalent of the amount in euros.
Consequently, we expect the first tender to be held, because, given the stated need for 700 MW, it will be large-scale. It is necessary to assess the economic feasibility of participating in such a tender and, of course, the implementation of such facilities is not possible without war risk insurance.
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